A homeowner looking to transition to low-carbon heating is obtaining quotes for a domestic air-source heat pump installation. Their decision-making is heavily biased by bounded rationality and the anchoring effect.
This implies that the homeowner's final choice of installation package is based on:
an exhaustive calculation of the net present value of all heat pump systems on the market, using complete information to achieve absolute utility maximisation.
the price of the very first installation estimate they received, coupled with an incomplete comparison of alternative quotes due to cognitive and time limitations.
the lowest-priced estimate available, as bounded rationality dictates that consumers always select the cheapest option to avoid complex decision-making.
the highest-priced premium package under the assumption that price is a perfect indicator of energy efficiency, disregarding any initial quotes.
45 exam-style questions on AQA A Level Economics 1.2 Individual economic decision making (A-level only), covering 1.2.1 Consumer behaviour, 1.2.2 Imperfect information, 1.2.3 Aspects of behavioural economic theory, and 1.2.4 Behavioural economics and economic policy. Each one has a worked solution and a mark scheme showing where the marks go.